Robert Reich on Welfare & Poverty

Former Secretary of Labor; Democratic Challenger MA Governor

Social safety net has become less reliable as economy grows

As inequality has widened, the means America once used to temper it--progressive income taxes, good public schools, trade unions that bargain for higher wages--have eroded. As the risks of sudden loss of job or income have grown,
the social safety net has become less reliable. More of us lack health insurance. As a nation, we seem incapable of doing what is required to reduce climate change.
Many Americans are also concerned about the crassness and coarseness of much of contemporary culture, and about the loss of Main Streets and their surrounding communities. In all these respects, democracy has been unable to take effective action,
or even articulate the tradeoffs and sacrifices doing so would entail.

Capitalism has become more responsive to what we want as individual purchasers of goods, but democracy has grown less responsive to what we want together as citizens.

Include faith based organizations in crime prevention

We should contract with small and medium-sized community groups, including faith-based organizations, in areas with rising crime to provide mentoring and drug counseling services. They know the score, and they know who to worry about.
But we must also coordinate: individual neighborhoods and individual agencies accomplish much on their own, but unless there is exceptional leadership, they don’t operate together.

Redistribute capital instead of redistributing income

Instead of redistributing income, redistribute capital. We can't rely on direct handouts and income transfers to do the job. The have all sorts of negative side effects, such as dependency.

Capital assets--rather than income--are now where the action
is. Most Americans didn't get much out of the capital boom of the 1990s because most don't have much capital. While almost half of American families own some shares of stock nowadays, most of those holdings are valued under $5,000.
Young families are even less likely to own capital.

The biggest single consequence of 1990s bull market was to make those who were already rich before 1991 fabulously richer. The asset elevator has been lifting America's wealthy to ever higher vistas.
Hence the case for allowing the rest of America on the elevator, too.

It's no substitute for social insurance, but redistributing capital, and encouraging savings, is an important means of widening the circle of prosperity.

Entire idea of social insurance is under attack

Unemployment insurance isn't adequate for people permanently laid off and in need of a new job. It was designed for temporary layoffs during dips in the business cycle. And it doesn't cover the ever-growing number of workers who are employed part-time,
or who move from job to job.

For those not covered by unemployment insurance and threatened with destitution, welfare has traditionally offered an alternative. But even before welfare "reform" eliminated that safety net in
1996, welfare payments were shrinking in many states. In fact the entire idea of social insurance is under attack. Proposals are being floated for the wealthier and healthier to opt out. Whether in the form of private "medical savings accounts" to
replace Medicare, or "personal security accounts" to replace Social Security, the effect would be much the same: The wealthier and healthier would no longer share the risk with those who have a high probability of being sicker or poorer.

Give the bottom half a capital share in America's prosperity

Here's an idea for helping the bottom half share in the nation's prosperity. Give them, literally, a share in America. Spread the capitalism by spreading capital. Rather than just redistribute income to the poor, give them capital up front to build their
fortunes.

In the last few years, there have been several proposals for accomplishing this ambitious idea. One was Pres. Clinton's proposed Universal Savings Accounts: Families earning under $40,000 would get an annual $600 tax credit, plus another $700
if they deposited $700 of their own money. Or consider former Sen. Bob Kerrey's "Kid Save" plan. Here, the government would give every newborn a $1,000 savings account.

There are other variations, but you get the point. Instead of redistributing
income, redistribute capital. Encourage people to save and depend on their personal choices about how to invest money. This way we get the efficiency benefits of a market economy and also the social benefits of a more egalitarian society. It's a twofer.

Redistribute capital instead of redistributing income

Instead of redistributing income, redistribute capital. We can't rely on direct handouts and income transfers to do the job. The have all sorts of negative side effects, such as dependency.

Capital assets--rather than income--are now where the action
is. Most Americans didn't get much out of the capital boom of the 1990s because most don't have much capital. While almost half of American families own some shares of stock nowadays, most of those holdings are valued under $5,000.
Young families are even less likely to own capital.

The biggest single consequence of 1990s bull market was to make those who were already rich before 1991 fabulously richer. The asset elevator has been lifting America's wealthy to ever higher vistas.
Hence the case for allowing the rest of America on the elevator, too.

It's no substitute for social insurance, but redistributing capital, and encouraging savings, is an important means of widening the circle of prosperity.

1996 welfare reform didn't lift working moms out of poverty

The problem of single-parent poverty is not due to an increasing percentage of poor women giving birth to children they cannot afford. The trend among all women is towards having fewer children, and this includes poor women. The real problem is that,
inevitably, SOME women will have children they cannot afford.

Jobs at the bottom of the income ladder don't pay enough to support a working woman and her children, even if she's living and sharing expenses with a working man who's also at the bottom
of the income ladder. Doing away with our national system of welfare in 1996 may have made poor, nonworking mothers less "dependent" on government handouts, but it hasn't lifted them out of poverty. Most of the welfare poor have now become working poor.

In short, the real issue isn't so much a "moral crisis" within the American family as it is the growing asymmetry between what the emerging economy offers by way of work, and what children need by way of financial support.

Poor who won housing lottery had improved family results

Peer effects among school-age children are significant--a fact that parents of teenagers will hardly find surprising. High-school students are more likely to go to college when more of their classmates are college bound.
And whatever their level of ability, students do better in groups more able than they, on average, and worse in groups less able, although the process isn't symmetrical. Students of less ability are helped more by being together in classrooms with
students of greater ability than the more able are hurt by being combined with the less. New evidence strongly suggests that such childhood peer effects extend beyond schools to the communities surrounding them.
After a random sample of poor inner-city families received housing vouchers that enabled them to move to higher-income suburbs, their children's behavior improved relative to children in families who wanted the vouchers but lost out in the lottery.

Housing vouchers for poor families; push inclusionary zoning

A way to break up high concentrations of poverty would be to give all poor families housing-assistance vouchers, enabling them to afford homes in higher-income communities.
Preliminary evidence suggests that poor children of families who have the opportunity to move to higher-income neighborhoods do better than the children who remain behind in the poor ones.
In addition, we could require that housing developers include in their plans for upscale communities a certain proportion of low-income residences. "Inclusionary zoning" like this has met with considerable success in specific places around the nation.
And we could bar private insurers from imposing higher-risk premiums on people because of where they live, what they earn, or their genetic makeup.

Make mixed communities a goal of faith-based institutions

We could require that housing developers include in their plans for upscale communities a certain proportion of low-income residences. "Inclusionary zoning" like this has met with considerable success in specific places around the nation.

We could seek many other opportunities for different communities of race, income, and age to interact with one another. In fact, such bridging could become an overarching goal of community-based non-profit organizations.
Faith-based institutions would seem uniquely qualified to reach across such divides. Universities could link up with poor high schools and grammar schools in their region; their undergraduates could
tutor in such schools, university faculty could teach occasional classes and keep the faculties of the schools apprised of new research, and promising high-school seniors could be given university scholarships.

Give housing vouchers to poor families

We could break up high concentrations of poverty by giving housing assistance vouchers to all poor families, so they could live in more affluent communities.
Preliminary evidence suggests that poor children of families who move to higher-income communities do better than the poor children who stay behind.
In addition, we could require housing developers to include in their plans for upscale communities a certain proportion of lower-income residences.
And we could bar private insurers from imposing higher-risk premiums on people because of where they live, what they earn, or their genetic makeup.

Welfare's work rules are based on Protestant work ethic

The average adult working American now puts in almost 2,000 hours a year for pay. That's the equivalent of about 2 weeks more than he--or, especially, she--put in 2 decades ago. There's a lively debate among researchers about exactly how much time we're
putting in on the job relative to "free" time for other pursuits. Some contend that we actually have more free time than we used to.

Having a lot of work to do isn't necessarily bad. Work can give order and meaning to one's life.
It can also provide a sense of self-worth and dignity. Working hard is, after all, a core tenet of the moral consciousness of the West, a cornerstone of the Protestant ethic. In this view, there's virtue in hard work. "Free time" means idleness, which,
even if not inviting sin, surely corrodes character. Much of the debate over ending welfare in the US has rested upon these beliefs and values, but you hear them in all sorts of places.

Clinton’s signing of Welfare Reform was his worst decision

The Republicans had already given him [Clinton] two welfare bills. He had vetoed the first two. The third was slightly less draconian than the first two, but it was still awful. It treated immigrants badly. It cut food stamps. At some point this
economy is going to turn downward. And at that point there’s no safety net for millions of people. I knew that the president was going to sign the bill, and it seemed to me the worst decision of the administration.

Source: ABC Nightline Interview, “Clinton Years”
, Sep 1, 2000

Welfare reform resulted in millions working at dead end jobs

Many Democrats have celebrated the decline in welfare rolls without acknowledging that millions of people who are now at work are in dead-end jobs without a future. To the extent that there’s a moral core to American capitalism, it consists of three
promises: First, any adult needing to work full time deserves a full-time job. Second, that job should pay enough to lift that person out of poverty. Third, people should have the opportunity to move beyond this minimum by making use of their talents.

Income for wealthy increased 30% while poorest income fell

Today in "The New York Times", retiring Labor Secretary Robert Reich put out a kind of valedictory; he had a bar chart and some nice words for President Clinton. He happened to mention that the wealthiest 20% -- all the people who do things in this
society that get any visibility--that their income has increased 30%, while the bottom 20% had sunk significantly. The story also says that our President has been told specifically not to talk about these class issues.

Now Reich might have said, "This is a horrible thing. It's a scandal. The President's doing nothing; the Congress is doing nothing. I quit." Instead, he explains that the President is on the right track and he'd be doing even better if
Gingrich wasn't in the way. But it's there if you read it. The shameful growth of inequality in America is continuing.

Guaranteed federal retraining for poor unemployed

In 1992, Reich suggested a massive, guaranteed federal retraining program for anyone poor, unemployed, or on welfare. The program would provide an income subsidy for two years.
This was the kind of investment that would pay giant dividends in the future and demonstrate that Clinton was serious about human capital and willing to propose revolutionary, FDR-style programs.

Adviser Shapiro, wary of Reich's big-spending schemes,
hit the ceiling. He wrote a 7-page memo attacking the idea. It was precisely the type of old-Democrat, government-is-my-brother approach that had led to the current economic problems. Shapiro estimated the cost of Reich's plan at close to $100 billion;
it would create a perverse incentive to be unemployed. Besides, he added sarcastically, a two-year vacation for the poor was not exactly consistent with a New Democrat campaign aimed at the working middle class. Reich's proposal was shelved.